ETrade Plans to Exit U.S. Institutional Business
By Svea Herbst-Bayliss
BOSTON (Reuters) - Online brokerage E*Trade Financial (ETFC.O) said on Tuesday that it will exit the U.S. institutional sales business as it tries to streamline operations, but analysts still question its financial health.
"Upon further review of the core business and as part of last month's announced turnaround plan, we've decided to divest ourselves completely of our institutional sales business as the scale of the business did not warrant the expense of capital," ETrade spokeswoman Pamela Erickson said.
Roughly 30 jobs will be cut, Erickson said.
The news came after the company's share price hit its lowest level since 1996, tumbling more than 20 percent. In afternoon trading on Nasdaq, shares were down 61 cents or 21.91 percent at $2.20.
Speculation that ETrade might lose more customers, possibly fueled by a negative Citigroup analyst's report, reaction to a negative report from a ratings agency on Monday, and talk that Countrywide Financial Corp CFC.N, America's largest mortgage lender, might file for bankruptcy all weighed on the broker's shares, analysts and investors said.
Selling in ETrade stock also accelerated after the price fell below $3 a share, a point where many large investors are forced to liquidate their holdings. Last year, ETrade ranked as the Standard & Poor's 500 Index' worst performing company after it lost 87 percent in value.
ETrade already planned to end its global institutional sales business, but until now the U.S. unit looked safe. In recent weeks, however, the company decided on further cuts, Erickson said.
The news will be officially announced later in the month when the company reports earnings, Erickson said.
ETrade, like many other financial companies, has been battered by losses on securities ties to the U.S. mortgage market and late last year speculation mounted that it might face bankruptcy before hedge fund Citadel Investments Group engineered a $2.55 billion cash infusion.
But analysts and ratings agencies worried that was not enough. The ratings agency Egan-Jones said ETrade is in "dire need" of fresh financial support on Monday.
Citigroup analyst Prashant Bhatia reaffirmed his "sell" rating at the end of last year and said he expects the company to cut more jobs in the first quarter to preserve capital.
He also said ETrade likely lost about $30 billion in client assets in just over two months as nervous investors exited, and forecast E*Trade would continue to lose money for the next three years.
If it loses more client assets, E*Trade would be forced to sell loans and securities at a significant discount, Bhatia wrote.
(with additional reporting by Dinesh Nair, editing by Leslie Gevirtz)
